Mining industry the epicentre of investment

SCOTT SIMPSON, Vancouver Sun05.14.2012

These are the good old days for the British Columbia mineral exploration sector. Despite a global economic meltdown in 2008 and persistent worries about European debt, more money was ventured to explore potential mineral and metal resources in B.C. in the past five years than any similar period since 1971 — even after adjusting for inflation.

Related

These are the good old days for the British Columbia mineral exploration sector. Despite a global economic meltdown in 2008 and persistent worries about European debt, more money was ventured to explore potential mineral and metal resources in B.C. in the past five years than any similar period since 1971 — even after adjusting for inflation.

From 2007 to 2011, the sector attracted $1.829 billion — more than 10 times the 40-year low that ran from 1998 to 2002, when only $173 million was ventured.

When they took power in 2001, the B.C. Liberal Party blamed the former New Democratic government for scaring investment out of B.C.

But historical data from BC Stats shows that exploration investment in the province more or less tracks commodity prices, not the preferences of voters or the sentiments of politicians.

Today those prices are robust and notwithstanding any year-to-year volatility, they’re sustaining a world-leading mining sector. Canada is home to the head offices of more publicly traded mining companies than any other nation — 1,665, or about 58 per cent of mining companies worldwide, according to TMX. As of March 31, they had a total quoted market value of $449 billion.

In 2011 alone, close to 90 per cent of global mining sector financings went through the TSX and TSXV — and 39 per cent of the total global dollar amount of $12.5 billion. The money supports companies involved in exploration, project development, mine construction and mine redevelopment.

Half the money raised through Canadian stock exchanges stays here. TMX data sourced from Infomine shows that 53 per cent of TSX and TSXV financings, worth $5.1 billion, were located in Canada.

The remainder supported projects on every continent, with a bias toward the Americas: $1.6 billion, or 17 per cent, to projects in Mexico, Central and South America; and $1.2 billion, or 13 per cent, to projects in the United States.

Canada’s jurisdiction of choice is British Columbia, which is home to roughly 1,000 senior and junior companies, most of which cluster in downtown Vancouver.

“It’s a hugely important part of what drives corporate Vancouver, all of these mining companies and then the suppliers that they interact with, the legal firms, the accounting firms,” said Jock Finlayson, vice-president of the Business Council of British Columbia. “This is actually in my view probably ... the biggest industrial cluster for the city of Vancouver.”

The industry’s beginnings were, let’s say, ignoble. For decades, hyperbolic Howe Street promoters led many an unwary investor to prospective gold mines that turned out to be a pile of dross.

Tighter regulations arising from the 1997 Bre-X gold mine scandal have made it more difficult for a public company trading on a Canadian exchange to exaggerate the value of a mining property.

Which is not to suggest that an investment in a mining company is risk-free.

By rule of thumb, it takes about $100 million of investment to tease one new mine out of British Columbia’s vast and sometimes geologically baffling terrain. The investment flowing into B.C. isn’t exclusively for high-risk exploration ventures — it also goes to advance promising mineral discoveries through intensive drilling programs and detailed studies to determine whether a potential deposit is large enough to sustain a mine.

Ordinary or “retail” investors are barred from investing in the formative stages of mining companies, notes Kevin Campbell, managing director of investment banking for Haywood Securities, a Vancouver-based brokerage firm that works with both junior and senior companies in the mining sector.

“Once you are into a project that has some economic parameters wrapped around it, that risk level drops off substantially, but at the early stage of exploration, it’s as risky as it gets for an investment,” Campbell said. “So there are rules the securities commissions have imposed, rightfully, on things that are called private placements into high-risk companies or any kind of company — companies that don’t have full prospectus disclosure when they do a financing.”

Campbell said he’s “too young” to recall Howe Street’s heyday, but he believes it played a major role in Vancouver’s maturation as the world centre for mine project financing.

“The lawyers are specialized, the accountants are specialized, the salespeople, the analyst community is gigantic — that goes for Canada on whole. The institutional investors understand this stuff. Then we’ve got a huge, deep management pool of technical and non-technical people that understand the mining business, so it’s the place to be.”

The money comes in from all over the world. Campbell said there is a very educated retail population of investors in Canada and the U.S.

Gavin Dirom, president and CEO of the Association for Mineral Exploration British Columbia, noted that the $463 million invested in 2011 was a record year for the province.

Sustaining a high level of investment depends partly on commodity prices, and partly on the framework the government puts in place to support it. Major national and international mining companies are taking a greater interest in B.C. projects than they have in a couple of decades.

“In the 1980s and early ’90s, 75 per cent of the expenditure was borne by the majors, by these global international miners. Then you had a shift whereby it was 50-50 with juniors. Then you had a reversal where 75-80 per cent of the expenditure was junior-borne. Now we are back to 50-50 and arguably that might head back to the majority of spending coming from mid-tier and major companies.”

Comments

We encourage all readers to share their views on our articles and blog posts. We are committed to maintaining a lively but civil forum for discussion, so we ask you to avoid personal attacks, and please keep your comments relevant and respectful. If you encounter a comment that is abusive, click the "X" in the upper right corner of the comment box to report spam or abuse. We are using Facebook commenting. Visit our FAQ page for more information.

Share

Mining industry the epicentre of investment

Video

Today's Headline Videos

Best of Postmedia

The mystery of Malaysian Airlines Flight 370 has captivated the world for more than four years, but for two retired Ottawa air accident investigators, it all comes down to six seconds. And the evidence from those final moments before the Boeing 777 disappeared into the Indian Ocean is irrefutable, say Larry Vance and Terry Heaslip. “We […]

At first she was tearful, then she was horrified. The young woman had just discovered a cellphone that was recording her as she took her clothes off in an Ottawa doctor’s examining room. Confronted, the doctor insisted that the video was for “training purposes” and deleted it in front of her. Incredulous, she refused to […]

Almost Done!

Postmedia wants to improve your reading experience as well as share the best deals and promotions from our advertisers with you. The information below will be used to optimize the content and make ads across the network more relevant to you. You can always change the information you share with us by editing your profile.

By clicking "Create Account", I hearby grant permission to Postmedia to use my account information to create my account.

I also accept and agree to be bound by Postmedia's Terms and Conditions with respect to my use of the Site and I have read and understand Postmedia's Privacy Statement. I consent to the collection, use, maintenance, and disclosure of my information in accordance with the Postmedia's Privacy Policy.

Postmedia wants to improve your reading experience as well as share the best deals and promotions from our advertisers with you. The information below will be used to optimize the content and make ads across the network more relevant to you. You can always change the information you share with us by editing your profile.

By clicking "Create Account", I hearby grant permission to Postmedia to use my account information to create my account.

I also accept and agree to be bound by Postmedia's Terms and Conditions with respect to my use of the Site and I have read and understand Postmedia's Privacy Statement. I consent to the collection, use, maintenance, and disclosure of my information in accordance with the Postmedia's Privacy Policy.